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June 25, 2009

(Some) Brocade Backdating Settlements Revealed

We have more on Brocade’s boondoggle of a backdating derivative lawsuit — the expensive quest to make former execs pay the company back for the costs of the backdating scandal.

Details of the two settlements with former Brocade directors Neal Dempsey and Seith Neiman were put into the public record today. Dempsey is paying $200,000 and Neiman is paying $450,000 — but the money’s not actually going to Brocade. It’s just going to offset their own legal costs, which Brocade would otherwise have to pay. The $12.5 million settlement with prison-bound Brocade CEO Greg Reyes hasn’t been made public in court filings yet.

Lawyers jab at Brocade’s suit, after the jump.

The settlements (.pdf) were reached less than a year after Brocade launched a massive suit against 10 former execs with the help of noted Washington, D.C., securities litigator Ralph Ferrara of Dewey LeBoeuf. Although a few other settlements were reached, including one with Wilson Sonsini Goodrich & Rosati, half the defendants were dismissed and the company ended up spending much more on the litigation than it recovered.

A statement (.pdf) filed in court by Dempsey’s lawyers at K&L Gates and Neiman’s at WilmerHale takes a swipe at the Brocade suit, noting that Brocade initially asserted eight claims against the two directors, then it dropped two of those claims, then three of them were dismissed by Judge Breyer, and then an arbitration panel dismissed another claim, leaving two duty of loyalty claims.

“Dempsey and Neiman concluded that the negotiated terms — under which they will pay a small portion of their own attorneys’ fees but will not make any payment to Brocade — are fair and appropriate given the reality that it would cost more (in personal time and money) to litigate and win what little was left of the SLC’s case,” the lawyers write.

Brocade’s lawyers from Dewey wrote in court papers that the settlements were more about stopping the bleeding, since Brocade was paying to pursue them — and defend them because of indemnification agreements.

“These financial considerations were so serious that they predominated over consideration of Brocade’s claims and Dempsey’s and Neiman’s defense,” they wrote.